Oil prices surge to almost $100 a barrel after Putin ordered troops into Ukraine

Oil surged to its highest since 2014 this morning after Russia ordered troops into two breakaway regions in eastern Ukraine, adding to supply concerns that are pushing prices to near $100 a barrel.

The US, UK and its European allies are poised to announce new sanctions against Russia after President Vladimir Putin formally recognized the two regions in eastern Ukraine – Donetsk and Luhansk – escalating a security crisis on the continent.

But Russia is a major exporter of oil to the US, while roughly a third of Europe’s supply of gas comes from Russian pipelines – some of which run through Ukraine itself.

Ukraine has demanded an immediate halt to the Nord Stream 2 project to pipe Russian natural gas to Germany via the Baltic Sea.

Germany had long been reluctant to axe the deal, but Chancellor Olaf Scholz announced this morning that he had asked the German regulator of the pipeline to halt the review process.

‘There can be no certification of the pipeline and without this certification, Nord Stream 2 cannot begin operating,’ he said.

Western allies have thus far been vocal about intentions to impose brutal sanctions should Russia proceed with a full-scale invasion of Ukraine, but doing so would put their energy supply from Moscow at risk.

The crisis has placed even more stress on an oil market that has surged due to tight supplies as demand recovers from the coronavirus pandemic.  

Oil surged to its highest since 2014 this morning after Russia ordered troops into two breakaway regions in eastern Ukraine, adding to supply concerns that are pushing prices to near $100 a barrel (Rosneft oil rig seen at the Rosneft Vankor oil field in eastern Siberia)

Russia is a major exporter of oil to the US, while roughly a third of Europe’s supply of gas comes from Russian pipelines – some of which run through Ukraine itself

The US, UK and its European allies are poised to announce new sanctions against Russia after President Vladimir Putin (pictured) formally recognized the two regions in eastern Ukraine – Donetsk and Luhansk – escalating a security crisis on the continent

Ukraine has demanded an immediate halt to the Nord Stream 2 project to pipe Russian natural gas to Germany via the Baltic Sea. Germany had long been reluctant to axe the deal, but Chancellor Olaf Scholz announced this morning that he had asked the German regulator of the pipeline to halt the review process

‘The potential for a rally over $100 a barrel has received an enormous boost,’ said Tamas Varga of oil broker PVM. ‘Those who have bet on such a move anticipated the escalation of the conflict.’

Brent crude, the global benchmark, was up $3.38, or 3.5%, at $98.77 at 10am GMT, having earlier reached $99.50, the highest since September 2014.

US West Texas Intermediate (WTI) crude jumped $4.40, or 4.8%, to $95.47 versus Friday’s settlement, having earlier reached $96, also the highest since 2014.

‘Given the prevailing mood, oil prices may very likely climb into the triple digits in the near term.’ said Julius Baer analyst Norbert Rücker.

In the event of war in Ukraine, the US and other allied countries would likely release millions of barrels of oil from their strategic reserves to offset any restriction of supply from the East.

There is also talk in Washington of suspending federal taxes on gasoline, which could help restrain prices at the pump, at least for a short time, according to the New York Times. 

It comes as the Organization of the Petroleum Exporting Countries and allies, known as OPEC+, have resisted calls to boost supply more rapidly, while European nations scramble to reduce their reliance on Russia’s gas imports.

The Ukraine crisis shows Europe’s vulnerability after years of limited progress in completing an ‘energy union’ – a 2015 vision to allow affordable gas and electricity to flow across borders while diversifying suppliers and reaching climate goals. 

With gas reserves low and concerns a war could interrupt pipeline flows from Russia, the European Union is focused on getting liquefied natural gas, or LNG, by ship from the United States, Qatar, Algeria and elsewhere until renewables catch up.

A tank drives along a street after Russian President Vladimir Putin ordered the deployment of Russian troops to two breakaway regions in eastern Ukraine following the recognition of their independence, in the separatist-controlled city of Donetsk, Ukraine February 22, 2022 

Surging energy prices and fears of a Russian invasion of Ukraine are making European leaders think hard about energy security, particularly their decades-old reliance on Moscow for natural gas

Joe Biden on Monday signed an executive order prohibiting trade and investment between US businesses and citizens and two breakaway regions of eastern Ukraine

Doubling down on renewables would help reduce dependency on Russian gas, EU Energy Commissioner Kadri Simson said Monday, but reiterated that energy security was critical. 

The 27-nation EU is ‘on the safe side for this winter’ but doing ‘everything possible to get rid of this dependency,’ European Commission President Ursula Von der Leyen said Saturday at the Munich Security Conference. 

She accused Russia’s state-owned gas giant Gazprom of ‘deliberately trying to store and deliver as little as possible while prices and demand are skyrocketing.’

Russia meanwhile has fulfilled long-term contracts but failed to sell additional gas on the spot market, and has pushed for German approval of its contentious Nord Stream 2 pipeline as a way to solve Europe’s gas squeeze. 

Moscow has said it has no intention of cutting off gas supplies and has continually stressed its role as a reliable energy supplier. 

Putin’s recognition of the Donetsk and Luhansk rebel regions’ independence paves the way for the long-feared Russian invasion. Pro-Russian residents in Donetsk celebrated independence with a fireworks show on Monday

Military vehicles are seen on the move on Monday night in Donetsk

Security analysts say Russia would have little interest in a total gas cutoff that would deprive it of revenue and give Europe a further incentive to find other sources of energy.

But Moscow’s decision to send troops and armored vehicles into Eastern Ukraine on a ‘peacekeeping’ mission has sparked fears that a full-scale invasion is imminent and could trigger a major fallout for oil and gas futures. 

Global stocks meanwhile slid amid news of the Russian incursion into Eastern Ukraine.

London’s FTSE 100 index fell by more than 1.5 per cent today and European shares hit a seven-month low.

Germany’s DAX fell 2.07 per cent or 311 points to 14,731 this morning, and the CAC 40 in Paris dropped 1.91 per cent or 129 points to 6,659.  

The Russian ruble weakened to 80.97 against the dollar, a level last seen on March 23, 2020, before rebounding to stand 0.7% higher at 79.24 as of 10.23 GMT.

***
Read more at DailyMail.co.uk